MAKE YOUR FREE Letter of Intent
What we'll cover
What is a Letter of Intent?
When should I use a Letter of Intent?
- if you are interested in signing an agreement with another business
- to formalise ongoing discussions between two businesses
- to record what has been agreed upon before a legally enforceable agreement is drawn up
- to protect your valuable business information and key employees
Sample Letter of Intent
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STRICTLY PRIVATE AND CONFIDENTIAL
To:
Date:
SUBJECT TO CONTRACT
Dear ,
Proposed Agreement: Letter of intent
Introduction and Status of the Negotiations
- Further to our recent discussions, the purpose of this letter is to set out the principal terms and conditions upon which (the First Party) agree to enter into (the Proposed Agreement) with (the Second Party). The First Party and the Second Party are referred to as "each Party" or "the Parties" in this letter.
- The terms in this letter are not exhaustive and are expressly 'subject to contract' until a final written agreement has been entered into. The terms are not intended to be legally binding between the parties except where specifically stated.
Timescale and Notice to Terminate
- The Parties agree to negotiate in good faith with a view to signing the final written Proposed Agreement on or before .
- Either Party may at any time, by giving notice to the other in writing, terminate negotiations for the Proposed Agreement, without having to give any reasons for doing so.
- The Party giving notice will not incur any financial liability to any other Party, unless it has breached a legally binding obligation of this letter as set out below.
- Upon giving notice of termination, each Party must:
- return all of the other party's equipment and materials;
- return or destroy (as directed in writing by the other party) any documents, handbooks, CD-ROMs or DVDs, software or other information or data provided to it by the other party.
Essential Pre-conditions to an Agreement
- Any Proposed Agreement between the Parties is conditional upon:
- the Parties negotiating, drafting and agreeing the satisfactory terms of the Proposed Agreement governed by English and Welsh law;
- the approval of and consent to the Proposed Agreement being given by (i) the Parties (including any necessary internal, shareholder, board of directors, or partner consents, as appropriate) and (ii) any relevant third party agencies including (without limitation) any tax, regulatory, export, certification or competition authorities. Any such approvals and consents shall remain in full force and effect until the Agreement is signed.
Basis of Proposed Agreement
- Under the Proposed Agreement, the First Party's primary obligations are:
- Under the Proposed Agreement, the Second Party's primary obligations are:
Costs
- This paragraph is legally binding.
- Each Party is responsible for its own costs in connection with the Proposed Agreement, whether or not it proceeds (including, without limitation, the preparation and negotiation of this letter, the negotiation and drafting of the Proposed Agreement and any documents contemplated by it).
Other Agreements
- This paragraph is legally binding.
- Where they exist, any agreements between the parties will continue to apply to this letter and shall remain in full force and effect and are not affected by anything in this letter.
Rights and Remedies
- This paragraph is legally binding.
- Each Party agrees that damages alone would not be an adequate remedy for any breach of a legally binding obligation by the other Party. In such an event, the non-defaulting Party shall be entitled to the remedies of an injunction, specific performance or other equitable relief in addition to any other remedy including damages.
- This letter is for the benefit of the parties to it and is not intended to benefit, or be enforceable by, anyone else.
Governing Law and Jurisdiction
- This paragraph is legally binding.
- The agreement constituted by this letter shall be governed by the laws of England and Wales and the courts of England and Wales shall have exclusive jurisdiction for all matters arising under it.
Commencement and Signature
- The agreement in this letter will take effect from the time that the First Party receives the signed duplicate agreement from the Second Party and will remain in effect until superseded by the Proposed Agreement, notice to terminate negotiations or other event equivalent to termination (including insolvency of one of the Parties or the performance of the obligations set out above (Basis of Proposed Agreement)).
- Please indicate your acceptance of the terms of this letter by counter-signing below within seven days from receipt, failing which we will assume that you do not wish to proceed.
We look forward to hearing from you,
Yours faithfully,
acknowledge receipt of your letter dated , and we accept and agree to its terms.
About Letters of Intent
Learn more about making your Letter of Intent
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How to make a Letter of Intent
Making a Letter of Intent online is simple. Just answer a few questions and Rocket Lawyer will build your document for you. When you have all of the details prepared in advance, making your document is a quick and easy process.
To make your LOI you will need the following information:
Party details
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The sender’s details (eg legal structure, name and address).
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If the sender is a company, partnership or LLP, who is signing on its behalf?
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The recipient’s details (eg legal structure, name and address).
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If the recipient is a company, partnership or LLP, who is signing on its behalf?
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Agreement
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On what date will the LOI be sent?
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What type of contract do the sender and recipient wish to enter into?
Preconditions
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Do the sender and recipient want to include:
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An exclusivity clause? If so, for how long after signing the LOI will the exclusivity clause apply?
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A non-solicitation clause? If so, for how long after signing the LOI will the non-solicitation clause apply?
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A confidentiality clause? If so, for how long will the parties agree to maintain confidentiality? If not, have the parties already entered into a confidentiality agreement and when will it be signed?
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Before signing the proposed agreement, does either party have to:
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Conduct any required investigations into the business of the other party?
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Comply with any other preconditions to be set out in this LOI? If so, what are they?
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Proposed agreement
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What are the key duties of the sender under the proposed agreement?
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What are the key duties of the recipient under the proposed agreement?
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What is the pricing or fee structure of the proposed agreement?
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Do the parties want to set out any other agreed terms in this LOI and, if so, what are they?
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When do the parties intend to sign the final written version of the proposed agreement?
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If either party is based in Scotland, will the laws of Scotland or the laws of England and Wales apply to the proposed agreement?
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Common terms in a Letter of Intent
An LOI is used to set out the basis for a future agreement between your business and another business. To do this, this Letter of Intent covers:
Introduction and status of the negotiations
This section outlines that the LOI’s purpose is to set out the principal terms and conditions upon which the proposed agreement between the parties will be based. It also defines certain key terms like ‘First Party’, ‘Second Party’ and ‘Proposed Agreement’, which are used throughout the LOI.
Timescale and notice to terminate
This section sets out that the parties are negotiating the terms of the proposed agreement. It also outlines how either party may end these negotiations and what steps must be taken after such termination.
Essential preconditions to an agreement
This section details the preconditions that must be met by the proposed agreement. If these preconditions are not met, the proposed agreement will not be entered into.
Basis of proposed agreement
This section details the key responsibilities of both parties under the proposed agreement and any other terms the parties wish to include in the LOI.
Confidentiality
This section will appear if the parties wish to include a confidentiality clause in their LOI. It is legally binding. The section provides an overview of the relevant confidentiality provisions, including how long confidentiality must be maintained and when confidential information may be disclosed.
Non-solicitation of employees and customers
This section will appear if the parties wish to include a non-solicitation clause in their LOI. It is legally binding. The section provides an overview of the relevant non-solicitation provisions, including the duration of the clause and who shouldn’t be approached.
Exclusivity
This section will appear if the parties wish to include an exclusivity clause in their LOI. It is legally binding. The section provides an overview of the relevant exclusivity provisions, including when they come into effect and for how long.
Costs
This section is legally binding and sets out that either party is liable for its own costs in connection with the proposed agreement.
Other agreements
This section is legally binding and sets out that any agreements between the parties shall continue to apply and are not affected by this LOI.
Rights and remedies
This section is legally binding and sets out what happens if any legally binding obligations under this LOI are breached. It also clarifies that no party other than the sender and recipient can enforce the provisions in the LOI.
Governing law and jurisdiction
This section is legally binding and sets out which country’s laws (either the laws of England and Wales or the laws of Scotland) govern this LOI.
Commencement and signature
This section sets out when the LOI will take effect and until when it will remain in place. It also asks the recipient to indicate their acceptance of the LOI and its terms by counter-signing the document within 7 days of receipt.
If you want your Letter of Intent to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review or change the LOI for you, to make sure it complies with all relevant laws and meets your specific needs. Ask a lawyer for assistance.
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Legal tips for making a Letter of Intent
Be aware of which clauses in the Letter of Intent are and aren’t legally binding
As an LOI provides the basis for a future or proposed agreement, only certain provisions are legally binding. The provisions of an LOI that are legally binding include those which relate to confidentiality, non-solicitation and exclusivity. Aside from the provisions that are specifically identified as legally binding, the content of the LOI is not legally binding.
For more information, see the FAQ entitled ‘Is the Letter of Intent legally binding?’.
Understand when to seek advice from a lawyer
Ask a lawyer for advice:
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if this document doesn’t meet your needs
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regarding a legally enforceable agreement, if the performance of the agreement is about to begin or has already begun
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Letter of Intent FAQs
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What should a Letter of Intent include?
This Letter of Intent template covers:
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details of the proposed agreement
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the target completion date
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pre-conditions to the proposed agreement
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the parties' key obligations
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options to include legally binding obligations of confidentiality, exclusivity and non-solicitation
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What is the purpose of a Letter of Intent?
A Letter of Intent details the initial terms of a future agreement.
You can use this Letter of Intent both during ongoing negotiations and once negotiations are complete. An LOI sets out both parties' obligations to each other during the relevant phase of negotiation (such as preconditions) and a basis for what the final agreement will look like when drawn up.
A Letter of Intent can be used in lots of situations (eg when looking to set up a joint venture or negotiating a Services agreement).
For more information, read Letters of intent.
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What is the difference between an LOI and heads of terms?
An LOI and Heads of terms are similar documents. Both set out the intentions of two businesses and provide the basis for a future or proposed agreement. However, while an LOI is a letter, heads of terms are drafted as a skeleton contract. Nevertheless, the effect of the two documents is the same.
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What is due diligence and how does it apply to a Letter of Intent?
Due diligence is the investigation of the other party (eg their potential clients or business partners) to find out about any key risks to the proposed transaction. Due diligence can be dealt with prior to the final agreement. It is common for businesses to impose due diligence as a precondition to the final agreement. For more information, read Due diligence.
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What are preconditions?
In this LOI template, either or both parties may require the other party to comply with preconditions. These are conditions that must be met by either party before the finalised agreement can take effect. For instance, you may want to require certain key documents to be submitted or approved by an external agency (eg export control or safety certification) or you may require a check of the articles of association to see if you need approval from shareholders.
For more information, read Letters of intent
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Is the Letter of Intent legally binding?
Only some terms of this Letter are legally binding. These include the following:
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confidentiality - this agreement will create legally enforceable obligations of confidentiality between the parties, unless the parties have signed a separate confidentiality agreement
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non-solicitation - these clauses prevent either party from poaching the other's employees and customers
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exclusivity - these clauses prevent the parties from negotiating with anyone else for a specified period of time
The period of time that each clause is legally binding for depends on the circumstances of the relevant provision. However, the time and scope of the non-solicitation and confidentiality provisions must be reasonable. In this document, you can choose the period of time for both exclusivity and non-solicitation. It varies from 30 to 60 days for exclusivity and from 1 to 12 months for non-solicitation. For more information, read Non-compete clauses.
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What remedies are available if one party breaches a legally binding part of this Letter?
The remedies available for non-compliance will be adequate to the breach and apply only to breaches of legally binding terms (eg a non-solicitation or exclusivity provision). Adequate remedies as specified in this agreement may include:
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an injunction (which may stop the person or a company from starting or continuing an action that infringes the legal rights of the other party)
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court orders for specific performance
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other relief, in addition to any other remedies such as damages
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How can this LOI be ended?
This LOI can be ended at any time by one party giving notice to the other party.
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